Triangles are patterns created by sideways trading action. The widest part of the price range occurs earliest in the development of the pattern. As time passes, the trading range narrows. If you draw trendlines along the trading range, it forms the shape of a triangle.
There are four types of triangles:
Symmetrical - This pattern is marked by prices hitting a number of progressively lower peaks, which creates larger troughs. When the price breaks out of this pattern, it is by an amount that is equal to the base of the triangle. The break out price also moves in the direction of the original trend.
Ascending – The slope created by price highs and lows meet at a point to form the pattern of a triangle. It is called ascending because the hypotenuse slopes from lower to higher and from left to right. When the two trendlines are drawn, there has to be at least four points of contact before a breakout happens. Ascending triangles that occur after a downtrend have break out prices that break down and out.
Descending - The slope created by price highs and lows also meet at a point to form the pattern of a triangle. What makes this a descending triangle is the sloping of the hypotenuse from higher to lower as well as from left to right. Descending triangles that occur after an uptrend have break out prices that break up and out.
Expanding - This type of triangle does not occur very often. It is a pattern created by groups of up and down movements that look like waves. Each group has three waves and there are five groups in total. A breakout price only occurs after there have been at least two contact points for each of the two trendlines.
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